Managing in Contemporary Organizations

Lecture Overheads: Week 4

1. Wrap up discussion of organizational fit (last week) 2. Explain why a hierarchy of authority emerges in an

organization 3. Describe the issues involved in designing a hierarchy to

coordinate and motivate organizational behavior most effectively

4. Discuss the way in which particular design challenges provide for methods of control and affect the design of the hierarchy

5. List the principles of bureaucratic structure and explain their implications for the design of effective organizational hierarchies

6. Explain why organizations are flattening their hierarchies and making more use of empowered teams of employees

Today

6. Explain why most organizations initially have a functional structure and why, over time, problems arise with this structure that require a change to a more complex structure

7. Distinguish between three kinds of divisional structures (product, geographic, and market) Describe how a divisional structure works Explain why many organizations use this structure to

coordinate organizational activities and increase their effectiveness

8. Discuss how the matrix structures work and why and when they are chosen to coordinate organizational activities

9. Identify the unique properties of network structures and the conditions under which they are most likely to be selected as the design of choice

Today..a lot to do!

Fit Between Organization & Environment

Harvard vs McDonalds Bolman & Deal (2003)

McDonalds

Highly structured Predictable Standardized

Harvard

Loose structure Decentralized Complex

Contingency Approach *A management approach in which the design of an organizations structure is tailored to the sources of uncertainty facing an organization *Organization should design its structure to fit its environment.

Mechanistic & Organic Structures

*Mechanistic structures: structures which are designed to induce people to behave in predictable, accountable ways

*Organic structures: structures which promote flexibility, so people initiate change and can adapt quickly to changing conditions

Exercise Structural imperatives - Bolman & Deal (2003)

Discuss the following dimensions and their effects on organizational structure:

1. Size & Age 2. Information technology 3. Nature of the workforce

Lawrence & Lorsch *When environment is perceived as more

unstable and uncertain: *Effective organizations are less formalized,

more decentralized and rely more on mutual adjustment.

*When environment is perceived as stable and certain: *Effective organizations have a more centralized,

standardized, and formalized structure

Burns & Stalker *Also found that organizations need

different kinds of structure to control their activities based on the environment *Unstable and changing environment: *Organic structures are more effective

*Stable environment: *Centralized, formalized and standardized

characteristic of mechanistic structures are more effective

Environmental Uncertainty & Structure

Issues: 1. The hierarchy begins to emerge when the

organization experiences problems in coordinating and motivating employees.

2. Division of labor and specialization also makes it hard to determine how well an individual performs.

Solution: 1. Increase the number of managers it uses to monitor,

evaluate, and reward employees 2. Increase the number of levels in its managerial

hierarchy, thereby making the hierarchy of authority taller

Authority: How and Why

Flat and Tall Organizations

"work expands to fill the time available"

1. An official wants to multiply subordinates, not rivals More subordinates means more power Expanding hierarchies

2. Officials make work for one another But taller hierarchies mean a greater need for monitoring &

coordination Managers to manage the managers needed

Has implications for the number of managers and hierarchies Question: what are the problems with tall hierarchies?

Why Organizations Grow Tall: Parkinsons Law

* Problems with tall hierarchies: 1. Communication problems: both timing

and distortion 2. Motivation problems: an increase in levels

of management leads to a decrease in responsibility and motivation

3. Bureaucratic costs: managers cost money!

Why do Organizations Limit Hierarchies as They Grow?

*Principle of minimum chain of command: states that an organization should choose the minimum number of hierarchical levels consistent with is goals and the environment in which it operates

*Span of control: the number of subordinates a manager manages directly

Ideal Number of Hierarchical Levels?

Span of Control

Size and Number of Hierarchical Levels

168,200

* Look at Sonys current position and discuss: * What are the ways in which growing

organizations like Sony can remain effective and not expand their hierarchies indefinitely?

* Can you relate them to any of the design challenges?

Exercise

* Centralization: with decentralization, less direct managerial supervision is needed * Authority is delegated to the lower levels.

* Standardization: reduces the need for levels of management because rules substitute for direct supervision

* Question: is there an ideal form of organization?

* Weber: Yes; Principles of the bureaucracy

Factors Affecting Hierarchies

* Max Weber designed a hierarchy so that it effectively allocates decision-making authority and control over resources.

* Bureaucracy: a form of organizational structure in which people can be held accountable for their actions because they are required to act in accordance with rules and standard operating procedures

The Principles of Bureaucracy

Weber & The Principles of Bureaucratic Structure

* A roles task responsibility and decision-making authority and its relationship to other roles in the organization should be clearly specified

1. Role conflict: the state of opposition that occurs when two or more people have different views of what a subordinate should do, and as a result, make conflicting demands on that person

2. Role ambiguity: the uncertainty that occurs for a person whose tasks or authority are not clearly defined

Ad Principle Three

look at Sonys history structure and discuss: 1. What do you think that Sony Australias

organizational structure looked like in the early days?

2. What are the major changes that Sony Australia underwent throughout its history?

3. And how do you think it affected its structure?

Exercise

* A functional structure is a design that groups people on the basis of their common skills and expertise or resources they use.

* Functional structure is the bedrock of horizontal differentiation.

* An organization groups tasks into functions to increase the effectiveness with which it achieves its goals.

Functional Structure

Functional Structure

* Provides people with the opportunity to learn from one another and become more specialized and productive

* People who are grouped together by common skills can supervise one another and control each others behavior.

* People develop norms and values that allow them to become more effective at what they do.

Functional Structure: Advantages

1. Communication Problems: As more organizational functions develop, each with their own hierarchy, they become increasingly distant from one another.

2. Measurement Problems: Information needed to measure the profitability of any functional group is difficult to obtain.

3. Location Problems: Does not allow handling of sales on a geographic basis

4. Customer Problems: Servicing needs of new kinds of customers are difficult.

5. Strategic Problems: Top managers spend too much time finding ways to improve coordination.

Control Problems in a Functional Structure

* Functional structure is appropriate if the organization:

1. Limits itself to producing a small number of similar products

2. Produces those products in one or a few locations

3. Sells them to only one general type of client or customer

From Functional Structure to Divisional

* However, as organizations grow, they are likely to produce more products, which may be different from each other.

* Organizations also increase production at a number of location to serve many different types of customers.

* More complex structure is based on: * Increasing vertical differentiation * Increasing horizontal differentiation * Increasing integration

From Functional to Divisional

* Organizations most commonly adopt the divisional structure to solve control problems with too many products, regions, or customers.

* Divisional structure is dependent on control problem to be solved.

* Three types 1. Product structure 2. Geographic structure 3. Market structure

Moving to a Divisional Structure

Product structure: a divisional structure in which products (goods or services) are

grouped into separate divisions according to their similarities or differences

Has a structure in which a centralized set of support functions service the needs of a number of different product lines

Organizations that produce a wide range of products typically use the multidivisional structure.

Most Fortune 500 companies use a multidivisional structure. Allows them to grow and expand their operations while maintaining control

over their activities

Divisional Structure I: Product Structure

Product Division Structure

Fujitsu

Multidivisional Structure

Divisional Structure II: Geographic Structure

Geographic Structurea trusted recipe!

Divisional Structure III : Market Structure

Look at the organizational charts of Sony and discuss:

1. How would you classify Sonys current organizational structure?

2. What is the importance of the common platforms?

3. In Sonys former organizational structure, discuss why certain individuals have multiple roles

4. What is their importance?

Exercise

Sonys Current Organizational Chart

Sonys Former Organizational Chart

Hybrid Forms

SCEE - Chart

Matrix Structure

1. The use of cross-functional teams reduces functional barriers and subunit orientation.

2. Opens up communication between functional specialists 3. Provides opportunity for cross-functional team members

learn from one another 4. The matrix enables an organization to maximize its use

of skilled professionals, who move from product to product as needed.

5. The dual functional and product focus promotes concern for both cost and quality.

Advantages of a Matrix Structure: Two Bosses

1. Matrix lacks a control structure that leads employees to develop stable expectations of one another.

2. The lack of a clearly defined hierarchy of authority can also lead to conflict between functions and product teams over the use of resources.

3. People are likely to experience a vacuum of authority and responsibility.

1. People then create their own bureaucracy to provide themselves with some sense of structure and stability.

Disadvantages of a Matrix Structure: Two Bosses(!)

* Hybrid form of governance; between market & hierarchy

* A cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority (market element)

* Allows for flexible specialization (hierarchy element) * Very complex as companies form agreements with

many suppliers, manufacturers, and distributors

Network Structure: Powell (1990)

* Benetton = Italian leisure-wear company with a trademark for provocative advertising.

* The archetypal network organization: * Benetton used independent agents (market) for:

* Production * Distribution * Retail

* In combination with centralized elements (hierarchy) * a global product portfolio; * a common market approach; * a worldwide standardized shop image; * a global financial management; * a global communications strategy.

Yes! United Colors of Benetton

1. To the degree that a network partner can perform a specific functional activity reliably, and at a lower cost, production costs are reduced.

2. Avoids the high bureaucratic costs of operating a complex organizational structure

3. Allows an organization to act in an organic way 4. Access to low-cost foreign sources of inputs and

functional expertise

Advantages of Network Structures

*A considerable level of mutual adjustment is needed to allow the groups to interact so that they can learn from one another, which can be costly.

*Difficult to obtain the ongoing learning that builds competences as companies have no incentive to do so

Disadvantages of Network Structures

1. Hierarchy is needed to motivate and coordinate 2. Webers principles of bureaucratic structure still

underlie most modern corporations 3. Limits of a functional structure and need for more

complex structures 4. Three types of divisional structures (product,

geographic, and market) 5. Matrix structures & network structures work under

high levels of environments uncertainty (both are organic)

What have we learned today?